EADS, Safran Cut Currency Hedging in Fourth Quarter as Euro Rose

March 8 (Bloomberg) -- European Aeronautic, Defence & Space
Co., Europe’s biggest aerospace and defense company, and Safran
SA, the region’s second-biggest maker of aircraft engines,
reduced the size of their currency-hedging portfolios for the
first time in a year, filings show.

EADS, the parent of Airbus SAS, said a stronger euro
contributed to it cutting back on contracts to protect against
swings in exchange rates in the fourth quarter. EADS lowered its
hedges by $2.8 billion to $83.6 billion, while Safran reduced
outstanding contracts by $700 million to $15.1 billion, earnings
statements show.

“Essentially, it was a combination of the fact that there
was a bit more volume of hedges maturing in Q4 than in the
previous quarter, and the fact that the euro-dollar rate
increased to around $1.30 from an average of about $1.25 in
previous quarters,” Rod Stone, a spokesman for Toulouse,
France-based EADS, said in an e-mailed statement.

The companies benefit from locking in the lowest possible
exchange rate because revenue from dollar-denominated defense
contracts is protected should the euro strengthen. As the euro
rises, adding more hedges would mean locking in a higher rate.

The market value of EADS’ derivatives improved to negative
500 million euros ($649 million) at the end of 2012, from
negative 2.4 billion euros at the end of 2011. The improvement
was due to the reduction in hedge rates achieved by the company,
Chief Financial Officer Harald Wilhelm said on a Feb. 27
conference call. The euro’s 2.6 percent appreciation against the
dollar in the fourth quarter also boosted the value of the
companies’ existing derivatives.

Average Rate

Safran has an average rate of $1.29 in 2013, and has used
options to reduce the exchange rate in 2015 and 2016 to $1.25
and $1.26. Safran had a notional $9 billion in so-called
accumulator notes at the end of 2012, compared with $12 billion
at the start of the year, filings show.

The company had increased its hedges to a 3.5-year horizon
in the middle of 2012, and the end-of-year reduction reflects
the return to a three-year portfolio, Catherine Malek, a Safran
spokeswoman in Paris, said in an e-mailed statement.

“EADS and Safran have enjoyed an FX tailwind this year,
and it looks like they crammed most of their hedging in the
first nine months,” said Sandy Morris, an analyst at Jefferies
International Ltd. in London.

The euro traded at $1.2963 at 5:39 p.m. in London, having
appreciated from last year’s low of $1.2043 on July 24.